 To plan, or not to plan? Optimal planning and saving for retirementErin Cottle Hunt, Seth Neumuller and Yashna Shivdasani Journal of Economic Behavior & Organization, 2024, vol. 224, issue C, 39-65 Abstract: A large percentage of U.S. households arrive at retirement with little or no financial wealth. Empirical evidence suggests that many of these households undertook little or no planning for retirement while young. We demonstrate how the decision to avoid planning and saving for retirement while young can arise as an optimal choice made by forward-looking, utility maximizing households facing an exogenous retirement date. In our model, boundedly rational households select the length of their planning horizon optimally each period, in addition to making an optimal consumption and saving decision. Planning is costly insofar as households must expend effort, cognitive or otherwise, to plan for the future. In a calibrated version of our model, the average household avoids planning and saving for retirement while young and, as a result, arrives at retirement with less than one-fifth of the wealth that they otherwise would have accumulated had they instead planned for their entire remaining lifetime, as in a standard life-cycle model. Keywords: Planning; Retirement; Life-cycle model; Short-planning horizon (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:224:y:2024:i:c:p:39-65 DOI: 10.1016/j.jebo.2024.05.006 Access Statistics for this article Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D. More articles in Journal of Economic Behavior & Organization from Elsevier |
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